Turkish rout slows, central bank steps in

Turkey's lira has recouped some of its earlier losses after the country's central bank took steps to stem the currency's freefall.

The measures come after the Turkish lira hit record lows against the dollar amid a widening diplomatic spat with the United States.

Turkey's central bank said on Monday it had lowered reserve requirement ratios for banks, pledging to take all necessary measures to maintain financial stability.

Also helping was Turkish Finance Minister Berat Albayrak's comments the country had drafted an action plan to ease investor concerns while the banking watchdog said it limited swap transactions.

Yet the US dollar was still up more than nine per cent on the day at 6.9743 lira. This time last month it was at 4.8450.

The currency has lost more than 40 per cent against the dollar this year, largely over worries about President Tayyip Erdogan's influence over the economy, his repeated calls for lower interest rates, and worsening ties with the United States.

"The plunge in the lira, which began in May, now looks certain to push the Turkish economy into recession and it may well trigger a banking crisis," said Andrew Kenningham, chief global economist at Capital Economics.

"This would be another blow for EMs as an asset class, but the wider economic spillovers should be fairly modest, even for the eurozone," he added.

Kenningham noted Turkey's annual gross domestic product of around $US900 billion ($A1.2 trillion) was just one per cent of the global economy and slightly smaller than the Netherlands.

The Turkish equity market was less than two per cent of the size of the UK market, and only 20 per cent was held by non-residents, he added.

"Nonetheless, Turkey's troubles are a further headwind for the euro and are not good news for EM assets either."